quarterly real estate monitoring report · 26.06.2019 · lone star real estate fund iv dra growth...

Quarterly Real Estate Monitoring Report

For the period ended December 31, 2018

Report prepared for:

Water and Power Employees' Retirement Plan

IMPORTANT INFORMATION

None of StepStone is undertaking to provide impartial investment advice, or to give advice in a fiduciary capacity, in

connection with any investor’s continued engagement of StepStone.

All data is as of December 31, 2018, unless otherwise noted.

PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. ACTUAL PERFORMANCE MAY VARY.

This document is meant only to provide a broad overview for discussion purposes. All information provided here is subject

to change. This document is for informational purposes only and does not constitute an offer to sell, a solicitation to buy, or

a recommendation for any security, or as an offer to provide advisory or other services by StepStone Group LP, StepStone

Group Real Assets LP, StepStone Group Real Estate LP, Swiss Capital Invest Holding (Dublin) Ltd, Swiss Capital Alternative

Investments AG or their subsidiaries or affiliates (collectively, “StepStone”) in any jurisdiction in which such offer,

solicitation, purchase or sale would be unlawful under the securities laws of such jurisdiction. The information contained in

this document should not be construed as financial or investment advice on any subject matter. StepStone expressly

disclaims all liability in respect to actions taken based on any or all of the information in this document.

This document is confidential and solely for the use of StepStone and the existing and potential clients of StepStone to

whom it has been delivered, where permitted. By accepting delivery of this presentation, each recipient undertakes not to

reproduce or distribute this presentation in whole or in part, nor to disclose any of its contents (except to its professional

advisors), without the prior written consent of StepStone. While some information used in the presentation has been

obtained from various published and unpublished sources considered to be reliable, StepStone does not guarantee its

accuracy or completeness and accepts no liability for any direct or consequential losses arising from its use. Thus, all such

information is subject to independent verification by prospective investors.

An investment involves a number of risks and there are conflicts of interest.

Each of StepStone Group LP, StepStone Group Real Assets LP and StepStone Group Real Estate LP is an investment adviser

registered with the Securities and Exchange Commission (“SEC”). StepStone Group Europe LLP is authorized and regulated

by the Financial Conduct Authority, firm reference number 551580. Swiss Capital Invest Holding (Dublin) Ltd (“SCHIDL”) is

an SEC Registered Investment Advisor and Swiss Capital Alternative Investments AG (“SCAI”) (together with SCHIDL, “Swiss

Cap”) is registered as a Relying Advisor with the SEC. Such registrations do not imply a certain level of skill or training and

no inference to the contrary should be made.

StepStone Group LP, its affiliates and employees are not in the business of providing tax, legal or accounting advice. Any tax‐

related statements contained in these materials are provided for illustration purposes only and cannot be relied upon for

the purpose of avoiding tax penalties. Any taxpayer should seek advice based on the taxpayer’s particular circumstances

from an independent tax advisor.

Prospective investors should inform themselves and take appropriate advice as to any applicable legal requirements and

any applicable taxation and exchange control regulations in the countries of their citizenship, residence or domicile which

might be relevant to the subscription, purchase, holding, exchange, redemption or disposal of any investments. Each

prospective investor is urged to discuss any prospective investment with its legal, tax and regulatory advisors in order to

make an independent determination of the suitability and consequences of such an investment.

All valuations are based on current values calculated in accordance with StepStone's Valuation Policies and may include

both realized and unrealized investments. Due to the inherent uncertainty of valuation, the stated value may differ

significantly from the value that would have been used had a ready market existed for all of the portfolio investments, and

the difference could be material. The long‐term value of these investments may be lesser or greater than the valuations

provided.

The presentation is being made based on the understanding that each recipient has sufficient knowledge and experience to

evaluate the merits and risks of investing in private market products. All expressions of opinion are intended solely as

general market commentary and do not constitute investment advice or a guarantee of returns. All expressions of opinion

are as of the date of this document, are subject to change without notice and may differ from views held by other

businesses of StepStone.

INCEPTION TO INCEPTION TO INCEPTION TO

DECEMBER 31, 2018 SEPTEMBER 30, 2018 DECEMBER 31, 2017 QUARTERLY ∆ ANNUAL ∆Number of Managers 23 23 22 ‐ 1

Number of Investments 36 36 34 ‐ 2

Number of Active Investments 33 34 33 (1) ‐

Committed Capital $1,428.8 $1,428.8 $1,278.8 $0.0 $150.0

Unfunded Commitment 505.2 625.6 528.6 (120.4) (23.4)

Total Exposure 1,466.5 1,477.4 1,340.7 (10.9) 125.8

Contributed Capital 1,081.8 953.8 893.2 128.0 188.6

Distributed Capital 478.5 451.0 373.9 27.5 104.5

Market Value 961.3 851.8 812.1 109.6 149.2

TOTAL VALUE $1,439.8 $1,302.8 $1,186.1 $137.0 $253.7

Total Gain/(Loss) 358.0 349.0 292.9 9.1 65.2

Net DPI 0.44x 0.47x 0.42x (0.03)x 0.02x

Net TVM 1.33x 1.37x 1.33x (0.03)x 0.00x

Net IRR 8.5% 8.7% 8.6% ‐19 bps ‐10 bps

Current Portfolio Value

Total Exposure Target Allocation Total Plan Asset

Value $961.3 $1,466.5 $1,098.0 $13,724.8

% of Total Plan Asset 7.0% 10.7% 8.0% 100.0%

Periodic TWR Performance for the period ended of December 31, 2018

1Quarterly and year‐to‐date returns are unannualized.

The following table illustrates the Portfolio's periodic time‐weighted returns (“TWR”) for the period ended December 31, 2018 by

attribution for gross level returns, as well as a total net return over the respective time periods.

I. EXECUTIVE SUMMARY

PERFORMANCE SUMMARY

StepStone Group LP (“StepStone”) was engaged by Water and Power Employees’ Retirement Plan to provide Real Estate services

for prospective investment opportunities, as well as portfolio management on Water and Power Employees’ Retirement Plan

The following table illustrates the Portfolio's since inception investment performance as of December 31, 2018 as well as the change

in performance from the prior quarter‐end and the end of the same quarter in the prior year. The Portfolio’s since inception net

Internal Rate of Return (“IRR”) now stands at 8.5% at December 31, 2018, which is down 19 basis points quarter‐over‐quarter.

As of December 31, 2018. In USD millions.

Past performance is not necessarily indicative of future results and there can be no assurance that the investment will achieve comparable results or avoid substantial losses.

Quarter1 YTD1 1-Year 2-Year 3-Year 5-Year InceptionIncome 0.8% 4.3% 4.3% 4.8% 5.0% 5.5% 5.7%

Appreciation 0.5% 6.1% 6.1% 7.4% 6.6% 7.4% 2.1%

Total Gross Return 1.3% 10.5% 10.5% 12.5% 11.8% 13.2% 7.9%

Total Net Return 1.0% 8.1% 8.1% 9.6% 9.3% 10.6% 5.9%

Water and Power Employees' Retirement Plan - Quarterly Report 1

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Total Gross Return ‐32.4% 20.7% 19.3% 15.1% 16.7% 15.6% 14.8% 10.6% 14.4% 10.5%Total Net Return ‐33.1% 17.9% 17.0% 13.1% 14.0% 13.2% 12.1% 8.8% 11.0% 8.1%

TOTAL GROSS RETURNS vs. BENCHMARKS(for period ended December 31, 2018)

The following graph depicts the Portfolio’s periodic total gross TWR compared to the NCREIF benchmark for

the period ended December 31, 2018.

PORTFOLIO RETURNS ‐ CALENDAR YEAR

1.3%

10.5% 10.5%

12.5%

11.8%

13.2%

7.9%

1.4%

6.7% 6.7% 6.8%7.2%

9.3%

7.2%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

QTR YTD 1‐Year 2‐Year 3‐Year 5‐Year ITD

WPERP NCREIF


Note: The referenced indices are shown for general market comparisons and are not meant to represent any particular fund. An investor cannot directly invest in an index. Moreover, indices do not reflect commissions or fees that may be charged to an investment product based on the index, which may materially affect the performance data presented.

QUARTERLY TOP INVESTMENT GAINS

INVESTMENT $ %Prudential PRISA 1.5 1.6%

Invesco Core Real Estate‐USA 1.4 2.1%

JP Morgan Strategic Property Fund 1.4 1.7%

Harrison Street Core Property Fund 1.3 1.8%

Prologis Targeted US Logistics Fund 1.3 3.1%

FPA Core Plus Fund III 1.2 2.3%

Bristol Value Fund II 0.9 5.2%

Lone Star Real Estate Fund IV 0.9 2.6%

Westbrook Real Estate Fund X 0.8 3.1%

TOP GAINS 10.7 2.2%

PORTFOLIO REVIEW

QUARTERLY VALUATION MOVEMENT

The valuation bridge below illustrates the net gain/loss that occurred during the quarter generated by the Portfolio underlying

portfolio investments. During the fourth quarter of 2018, the valuation of WPERP’s Portfolio increased by US$9.1 million or 1.1%.

The following table shows the top gains in the Portfolio by investment during the quarter ended December 31, 2018.


SINCE INCEPTION TOP PERFORMING INVESTMENTS

The following charts depict the top performing investments in WPERP’s Portfolio by IRR and TVM since inception through December

31, 2018.

15.0%

16.2%

16.4%

17.7%

20.2%

20.5%

20.7%

21.4%

25.7%

49.0%

Blackstone Real Estate Partners Europe IV ‐ USD

CBRE Strategic Partners V

Blackstone Real Estate Partners VII

Prologis Targeted US LogisticsFund

Lone Star Real Estate Fund IV

DRA Growth and Income Fund VII

AG Core Plus Realty Fund III

DRA Growth and Income Fund IX

Lone Star Real Estate Fund II

Lone Star Fund VII

TOP 10 PERFORMING INVESTMENTS BY IRR

IRR

1.5x

1.0x

0.1x

0.1x

1.5x

0.0x

0.3x

1.7x

0.0x

1.5x

1.5x

1.6x

1.6x

1.7x

1.7x

1.7x

1.7x

1.8x

1.8x

2.1x

Lone Star Real Estate Fund II

Blackstone Real Estate Partners VII

JP Morgan Strategic PropertyFund

Prologis Targeted US LogisticsFund


Prudential PRISA

Invesco Core Real Estate‐USA

Lone Star Fund VII

Prudential PRISA II


TOP 10 PERFORMING INVESTMENTS BY TVM

TVM DPI

$1,081.8m

$478.5m TOTAL DISTRIBUTIONS

SINCE INCEPTION VALUATION MOVEMENT

The valuation bridge below details the sources of value generated by WPERP’s underlying portfolio investments since inception.

Through December 31, 2018, the valuation of WPERP’s Portfolio increased by US$358.0 million.

+$358.0m

$961.3m MARKET VALUE

TOTAL CONTRIBUTIONS SINCE INCEPTION NET GAIN/(LOSS) TOTAL VALUE


PERFORMANCE BY SECTORAmounts in USD millions

SECTOR COMMIT CONT DIST NAV % of NAV TOTAL VALUE UNFUNDED DPI TVM IRRCore 565.0 596.7 140.7 638.0 66.4% 778.7 59.7 0.2x 1.3x 6.5%

Value Add 477.6 288.5 192.8 203.3 21.1% 396.0 230.7 0.7x 1.4x 11.5%

Opportunistic 386.2 196.6 145.0 120.1 12.5% 265.1 214.9 0.7x 1.3x 16.3%

Grand Total 1,428.8 1,081.8 478.5 961.3 100.0% 1,439.8 505.2 0.4x 1.3x 8.5%

EXPOSURE BY SECTOR

The following charts illustrate the Portfolio’s NAV and current exposure by sector (i.e. risk/return profile) at the underlying

investment level as of December 31, 2018.

SECTOR Quarter TWR YTD TWR 1-Year TWR 2-Year TWR 3-Year TWR 5-Year TWR Inception TWRCore 1.0% 6.5% 6.5% 7.8% 7.7% 9.3% 5.0%

Value Add 1.8% 11.5% 11.5% 11.5% 12.0% 12.9% 4.8%

Opportunistic ‐0.7% 9.8% 9.8% 14.0% 12.0% 13.1% 17.0%

Total 1 .0% 8.1% 8.1% 9.6% 9.3% 10.6% 5.9%

66.4%

21.1%

12.5%

NAV

Core Value Add Opportunistic

47.6%

29.6%

22.8%

NAV + UNFUNDED EXPOSURE

Core Value Add Opportunistic


SINCE INCEPTION TOP PERFORMING MANAGERS

The following charts depict the top performing managers of active investments in WPERPs Portfolio by IRR and TVM since inception

through December 31, 2018.

10.4%

10.8%

11.1%

12.4%

13.4%

15.9%

17.7%

17.9%

20.7%

26.4%

INVESCO Asset Management

Bristol Group Inc.

Torchlight Investors

Westbrook Partners

Almanac Realty Investors

The Blackstone Group

Prologis

DRA Advisors

Angelo, Gordon & Co

Lone Star

TOP PERFORMING MANAGERS BY IRR

IRR

0.1x

0.5x

0.8x

0.7x

1.0x

0.1x

0.1x

1.5x

0.3x

0.0x

1.3x

1.3x

1.4x

1.4x

1.5x

1.6x

1.7x

1.7x

1.7x

1.8x

Dimensional Fund Advisors


Lone Star

DRA Advisors

The Blackstone Group

JP Morgan Private Investments

Prologis

Angelo, Gordon & Co., L.P.


PGIM Real Estate

TOP PERFORMING MANAGERS BY TVM

TVM DPI


EXPOSURE BY MANAGER

The following charts illustrate the Portfolio’s current exposure by manager at the underlying investment level as of December 31,

27.3%

14.2%

9.0%7.9%

8%

7.3%

6.3%

5.7%

5.7%4.6%4.3%

NAV

Other

PGIM Real Estate


Brookfield

Harrison Street


DRA Advisors

Fowler Property Acquisitions

Jamestown

Prologis

Lone Star

33.2%

9.3%

9.1%7.7%

7%

6.4%

5.9%

5.9%

5.2%5.2%

5.1%

NAV + UNFUNDED EXPOSURE

Other

PGIM Real Estate

Lone Star


Torchlight Investors

DRA Advisors

Mesa West Capital


Brookfield

Harrison Street

USAA


LEVERAGE EXPOSURE

The following charts depicts the Portfolio’s leverage exposure as of December 31, 2018.

58.5%

56.2%

28.2%

41.5%

43.8%

71.8%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Opportunistic

Value Add

Core

Debt Equity

37.9%

62.1%

TOTAL PORTFOLIO

Debt Equity


QUARTERLY CASH FLOW ACTIVITY

QUARTERLY TOP CONTRIBUTIONS AND DISTRIBUTIONS

INVESTMENT CONT % INVESTMENT DIST %

Brookfield Premier Real Estate Partners 75.0 58.6% Lone Star Real Estate Fund V 3.8 13.9%

USAA Eagle Real Estate Fund 24.6 19.2% Lone Star Real Estate Fund IV 3.0 10.9%

LaSalle Asia Opportunity Fund V 8.0 6.3% DRA Growth and Income Fund VII 2.7 9.7%

DRA Growth and Income Fund IX 4.6 3.6% Mesa West Real Estate Income Fund III 2.7 9.7%

Westbrook Real Estate Fund X 3.3 2.5% DRA Growth and Income Fund VIII 2.4 8.8%

FPA Core Plus Fund III 3.0 2.3% DRA Growth and Income Fund IX 1.8 6.7%

Lone Star Real Estate Fund V 1.7 1.3% Blackstone Real Estate Partners VII 1.6 5.7%

Lone Star Real Estate Fund IV 1.7 1.3% Westbrook Real Estate Fund X 1.5 5.6%

Almanac Realty Securities VII 1.0 0.8% Harrison Street Core Property Fund 1.0 3.6%

Harrison Street Core Property Fund 1.0 0.8% Torchlight Debt Opportunity Fund IV 0.9 3.4%

TOP CONTRIBUTIONS 123.8 96.7% TOP DISTRIBUTIONS 21.4 77.9%

During the fourth quarter of 2018, the Portfolio contributed US$128.0 million and received US$27.5 million of distributions, for a

net cash outflow of US$100.5 million.

The following tables show the top contributions and distributions in the Portfolio by investment during the quarter ended December

31, 2018.

($126.5)

($25.8)($18.5)

($24.0)

($73.4)

($38.6) ($40.3)

($29.2)($23.8)

($15.9)($20.9)

($128.0)

$12.9 $14.1$19.8 $22.8

$16.2

$43.4$35.4 $37.9

$32.6

$16.9

$27.6 $27.5

($140)

($120)

($100)

($80)

($60)

($40)

($20)

$0

$20

$40

$60

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

2016 2017 2018

CONTRIBUTIONS DISTRIBUTIONS NET CASH FLOW


ANNUAL TOP CONTRIBUTIONS AND DISTRIBUTIONS

INVESTMENT CONT % INVESTMENT DIST %

Brookfield Premier Real Estate Partners 75.0 39.8% Jamestown Premier Property Fund 20.8 19.9%

USAA Eagle Real Estate Fund 24.6 13.0% Torchlight Debt Opportunity Fund IV 11.3 10.8%

FPA Core Plus Fund III 16.2 8.6% DRA Growth and Income Fund VII 5.7 5.5%

Westbrook Real Estate Fund X 14.2 7.5% Blackstone Real Estate Partners Europe IV ‐ USD 5.6 5.4%

LaSalle Asia Opportunity Fund V 10.7 5.7% DRA Growth and Income Fund IX 5.5 5.3%

DRA Growth and Income Fund IX 10.3 5.5% Mesa West Real Estate Income Fund III 5.5 5.3%

Torchlight Debt Opportunity Fund VI 6.0 3.2% DRA Growth and Income Fund VIII 5.1 4.9%

Jamestown Premier Property Fund 5.9 3.1% Westbrook Real Estate Fund X 4.7 4.5%

Lone Star Real Estate Fund V 5.1 2.7% Blackstone Real Estate Partners VII 4.7 4.5%

Bristol Value Fund II 3.9 2.0% Lone Star Real Estate Fund IV 4.1 3.9%

TOP CONTRIBUTIONS 171.8 91.1% TOP DISTRIBUTIONS 72.9 69.8%

ANNUAL CASH FLOW ACTIVITY

During the twelve months ended December 31, 2018, WPERP’s Portfolio contributed US$188.6 million and received US$104.5

million in distributions, for a net cash outflow of US$ 84.0 million.

The following tables show the top contributions and distributions in the Portfolio by investment during the twelve months ended

December 31, 2018.

($7.0) ($9.7)($20.8)

($50.6)($60.4)

($84.5) ($84.5) ($89.4)

($194.8)($181.4)

($188.6)

$0.4 $0.4 $2.7 $8.7 $12.2

$55.1$45.7 $46.1

$69.6

$132.9

$104.5

($250)

($200)

($150)

($100)

($50)

$0

$50

$100

$150

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

CONTRIBUTIONS DISTRIBUTIONS NET CASH FLOW


II. PORTFOLIO UNDERLYING HOLDINGS ANALYSIS

PROPERTY TYPE EXPOSURE

The following charts illustrate the Portfolio’s current exposure by property type compared to the benchmark, as of

December 31, 2018.

(for period ended December 31, 2018)

PROPERTY TYPE EXPOSURE vs. BENCHMARKS

29.8%

15.9%14.1%

28.5%

2.5%

9.1%

35.1%

16.5%

22.7%

25.2%

0.5%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

35.0%

40.0%

Office Industrial Retail Residential Hotel Other Property

WPERP NCREIF

0.2% 2.5%

15.9%0.5%

29.8%

8.5%

28.5%

14.1%

MARKET VALUE EXPOSURE

Healthcare Hotel Industrial Land Office Other Property Residential Retail

Note: All totals may not sum to 100% due to rounding.


GEOGRAPHIC EXPOSURE


The following charts illustrate the Portfolio’s current exposure by geography compared to the benchmark, as of

December 31, 2018.

GEOGRAPHIC TYPE EXPOSURE vs. BENCHMARKS

(for period ended December 31, 2018)

27.6%

9.9%

15.8%

29.9%32.0%

8.5%

20.0%

39.5%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

35.0%

40.0%

45.0%

US East US Midwest US South US West

WPERP NCREIF

3.3%

0.4%

5.9%0.2%

0.1%

0.1%

27.6%

9.9%6.9%

15.8%

29.9%


Asia Australia/Pacific Europe Foreign Other International:All Latin America

US East US Midwest US Other US South US West


INVESTMENT STRUCTURE EXPOSURE


The following chart illustrates the Portfolio’s current exposure by investment structure as of December 31, 2018.

6.3%

85.5%

1.6%

6.6%


Private Debt Private Equity Public Debt Public Equity


III. EXHIBITS

SCHEDULE OF INVESTMENTS

Amounts in USD millions

INVESTMENTCLOSING DATE

VINTAGE YEAR COMMIT CONT DIST NAV NAV %

TOTAL VALUE UNFUNDED DPI TVM IRR TARGET RETURNS

Core

Brookfield Premier Real Estate Partners 10/01/18 2018 75.0 75.0 0.0 75.6 7.9% 75.6 0.0 0.0x 1.0x 3.5% 9‐11%

Dimensional Global Real Estate Portfolio 09/01/12 2013 25.0 24.3 1.4 29.8 3.1% 31.3 2.1 0.1x 1.3x 5.3% >FTSE EPRA/NAREIT

FPA Core Plus Fund III 12/01/16 2016 60.0 91.7 41.4 54.5 5.7% 95.9 5.0 0.5x 1.0x 5.4% 9%

Harrison Street Core Property Fund 09/01/15 2016 60.0 69.7 9.7 75.5 7.9% 85.2 0.0 0.1x 1.2x 9.1% 9%

Heitman Real Estate Securities 09/01/13 2013 25.0 23.7 0.0 28.7 3.0% 28.7 2.1 0.0x 1.2x 4.1% >FTSE EPRA/NAREIT

Invesco Core Real Estate‐USA 03/01/11 2011 35.0 47.9 12.9 70.1 7.3% 82.9 0.0 0.3x 1.7x 10.4% NCREIF+1%

Jamestown Premier Property Fund 06/01/15 2016 60.0 71.4 32.0 54.5 5.7% 86.5 0.0 0.4x 1.2x 9.7% 8%

JP Morgan Strategic Property Fund 10/01/07 2007 50.0 56.0 6.0 86.3 9.0% 92.3 0.0 0.1x 1.6x 5.1% 8%

PCCP First Mortgage II 12/01/11 2012 25.0 28.6 32.7 0.0 0.0% 32.7 0.0 1.1x 1.1x 6.3% 7.5% Gross

Prologis Targeted US Logistics Fund 06/01/14 2015 25.0 28.9 3.9 44.2 4.6% 48.1 0.0 0.1x 1.7x 17.7% 9%

Prudential PRISA 12/01/06 2006 50.0 55.0 0.8 93.9 9.8% 94.7 0.0 0.0x 1.7x 4.9% 8%

USAA Eagle Real Estate Fund 10/01/18 2018 75.0 24.6 0.0 24.9 2.6% 24.9 50.4 0.0x 1.0x 7.0% 1% > ODCE

Core Total 12/01/06 2006 565.0 596.7 140.7 638.0 66.4% 778.7 59.7 0.2x 1.3x 6.5%

Value Add

AG Core Plus Realty Fund III 12/01/11 2011 20.0 19.1 28.0 4.0 0.4% 32.0 4.3 1.5x 1.7x 20.7% 13% Gross

Almanac Realty Securities VI 12/01/11 2012 20.0 12.4 11.8 5.6 0.6% 17.4 0.0 0.9x 1.4x 13.1% 12%

Almanac Realty Securities VII 12/01/14 2015 30.0 21.9 6.0 21.5 2.2% 27.5 11.1 0.3x 1.3x 14.4% 12%

Almanac Realty Securities VIII 04/01/18 2018 75.0 0.2 0.0 ‐0.1 0.0% ‐0.1 74.8 0.0x ‐0.7x 0.0% 12%

Bristol Value Fund II 03/01/11 2011 25.0 25.8 13.4 18.3 1.9% 31.6 6.7 0.5x 1.2x 10.8% 18%

DRA Growth and Income Fund IX 12/01/16 2016 60.0 34.1 10.3 30.0 3.1% 40.3 32.6 0.3x 1.2x 21.4% 12%

DRA Growth and Income Fund VII 09/01/11 2011 16.1 17.2 26.2 9.2 1.0% 35.4 0.0 1.5x 2.1x 20.5% 12%

DRA Growth and Income Fund VIII 12/01/13 2014 25.0 29.2 16.5 21.0 2.2% 37.5 1.0 0.6x 1.3x 12.2% 12%

Mesa West Real Estate Income Fund III 03/01/13 2012 25.0 18.9 20.4 4.1 0.4% 24.4 22.5 1.1x 1.3x 9.1% 12%

Mesa West Real Estate Income Fund IV 12/01/15 2016 60.0 18.7 1.4 19.3 2.0% 20.7 41.3 0.1x 1.1x 8.1% 9%

Prudential PRISA II 06/01/07 2007 21.5 23.7 0.3 42.9 4.5% 43.2 0.0 0.0x 1.8x 6.2% 9%

Westbrook Real Estate Fund X 03/01/16 2015 60.0 30.5 6.9 27.5 2.9% 34.4 36.4 0.2x 1.1x 12.4% 12%

Value Add Total 06/01/07 2007 477.6 288.5 192.8 203.3 21.1% 396.0 230.7 0.7x 1.4x 11.5%

Opportunistic

Blackstone Real Estate Partners Europe IV L.P. ‐ U 12/01/13 2013 25.0 25.1 23.5 13.5 1.4% 37.0 4.2 0.9x 1.5x 15.0% 15%

Blackstone Real Estate Partners VII L.P. 03/01/12 2011 25.0 29.7 29.0 18.2 1.9% 47.2 3.7 1.0x 1.6x 16.4% 15%


Amounts in USD millions

INVESTMENTCLOSING

DATE

VINTAGE

YEAR COMMIT CONT DIST NAV NAV %

TOTAL

VALUE UNFUNDED DPI TVM IRR TARGET RETURNS

LaSalle Asia Opportunity Fund V 09/30/17 2016 60.0 15.8 1.4 12.6 1.3% 14.0 46.0 0.1x 0.9x ‐34.1% 18%

Lone Star Fund VII, L.P. 06/01/11 2010 10.0 9.4 16.4 0.1 0.0% 16.5 0.6 1.7x 1.8x 49.0% 20% Gross

Lone Star Real Estate Fund II, L.P. 06/01/11 2010 10.0 8.9 13.3 0.4 0.0% 13.7 1.1 1.5x 1.5x 25.7% 20% Gross

Lone Star Real Estate Fund IV, L.P. 03/01/15 2015 48.5 38.1 20.0 33.2 3.5% 53.2 10.4 0.5x 1.4x 20.2% 20% Gross

Lone Star Real Estate Fund V, L.P. 06/01/16 2017 92.7 13.3 4.0 7.5 0.8% 11.6 80.3 0.3x 0.9x ‐15.7% 20%

Torchlight Debt Opportunity Fund IV 06/01/13 2012 25.0 32.3 33.1 9.8 1.0% 42.9 0.0 1.0x 1.3x 10.6% 15%

Torchlight Debt Opportunity Fund V 12/01/14 2015 30.0 18.0 1.9 21.2 2.2% 23.1 12.0 0.1x 1.3x 14.1% 13%

Torchlight Debt Opportunity Fund VI, LP 11/01/17 2018 60.0 6.0 2.6 3.4 0.4% 6.0 56.6 0.4x 1.0x ‐0.8% 12%

Opportunistic Total 06/01/11 2010 386.2 196.6 145.0 120.1 12.5% 265.1 214.9 0.7x 1.3x 16.3%

TOTAL 12/01/06 2006 1,428.8 1,081.8 478.5 961.3 100.0% 1,439.8 505.2 0.4x 1.3x 8.5%

Note: The total portfolio and sector data include the liquidated investments.


Water and Power Employees' Retirement Plan - Quarterly Report

IV.DEFINITIONS

Term Definition

Committed Capital

Contribution

Distribution

Distributions to Paid‐in Capital (“DPI”)

Total Exposure

Fair Market Value

Fund

Geography

Internal Rate of Return (“IRR")

Net Multiple (or Total Value Multiple, “TVM”)

16

Net Gain/Loss

An amount set by an investor and a fund manager, as the aggregate amount an investor will invest in the private equity fund, over the life of the investment period. Committed Capital is presented net of any commitment releases or expirations and reflects foreign currency exchange rate fluctuations.

Capital provided by the limited partners to pay a fund’s underlying investments, fees, and carried interest.

Cash or stock returned to the limited partners after the general partner has exited from an investment. Stock distributions are sometimes referred to as "in‐kind" distributions. The partnership agreement governs the timing of distributions to the limited partner, as well as how any profits are divided among the limited partners and the general partner.

The amount a partnership has distributed to its investors relative to the total capital contribution of the fund. DPI is calculated as a Distributions divided by Contributions. Also referred to as the Realization Ratio.

Total Exposure represents the maximum exposure a portfolio has to a targeted sector, geography, or other specific cut of the data.

The fair value of an investment, as defined within each limited partnership agreement, yet in compliance with the governmental regulation, generally prepared on a GAAP basis. Also referred to as Market Value.

The investment vehicle, often a limited partnership, to which the limited partners commit capital.

The region in which a portfolio company is located.

A performance metric that measures total value created by the portfolio’s daily cash flows and market value as of quarter‐end. The discount rate that equates the net present value (NPV) of an investment’s cash flows with its cash outflows. IRR is net of fund manager’s fees, expenses, and carried interest.

A performance metric that measures total value created by the portfolio relative to capital invested, without consideration for time. Calculated as the total value of an investment, which is comprised of the current market value of an investment plus the realizations generated from an investment, divided by the total capital invested in an investment. This metric addresses one particular shortfall of the IRR calculation, in that a high IRR over a short holding period is not necessarily attractive to a long‐term institutional investor.

Gains and Losses resulting from appreciation and net income less management and incentive fees.


Realization (or “Proceeds”)

Sector

Unfunded

Vintage Year

The capital received from a portfolio company, generally flowing from the portfolio company to the managing fund, in any dollar amount; however, generally for the sale of the investment, dividends or interest payable, etc.

A fund’s indicated investment focus, e.g. Buyout, Venture Capital, or Special Situations.

The total remaining commitment to a fund. Unfunded represents the aggregate remaining commitments to partnership investments.

The year of fund formation and first takedown of capital.

17

Term Definition


V. INVESTMENT TEAR SHEETS

18



Fund‐Level Information Client‐Level Information

Legal Structure: Risk/Return:

Investment End Date: Client Investment Date:

Termination Date: % Ownership of Fund:

Active Investments: Investment Commitment:

Target Return: Remaining Commitment:

NAV + Debt: Contributions:

Net Asset Value: Distributions:

Leverage Ratio: Equity Value:

Investment Strategy: NAV % of Portfolio:

Net IRR:

Total Value Multiple:

Since Inception


1/2015 12/2011

December 31, 2018

Partner/Manager: Angelo, Gordon & Co., L.P.

LP Value Add

12/2020 2.0%

7 $20,000,000

13% Gross $4,253,060

$644,832,792 $19,093,901

$236,599,352 $28,046,262

63.3% $3,971,436

Focus on office, industrial, multi‐

family and retail properties in

major metropolitan markets

where it can enhance value.

0.4%

20.7%

1.7x


Summary of Performance

for period ended 12/31/2018NCREIF

Net Total Gross Gross Gross +50 bps

(After Fees) Income Appreciation Total Gross Total

7.2%

1.5%

Year‐to‐Date ‐7.2% 0.4% ‐7.7% ‐7.3% 7.2%

Quarter ‐11.3% 0.0% ‐13.0% ‐13.0%

One‐Year ‐7.2% 0.4% ‐7.7% ‐7.3%

7.7%

Two‐Year ‐4.0% 1.8% ‐5.2% ‐3.5% 7.3%

Three‐Year 1.7% 3.1% 0.3% 3.3%

Property Type Diversification Geographic Diversification

Five‐Year 12.9% 4.7% 11.6% 16.6% 9.8%

12.7% 6.1% 12.0% 18.5% 10.2%

26.1%

15.8%

58.1%

US East

US Midwest

US West

47.8%

0.3%2.6%

49.3%

Office

Other Property

Residential

Retail

19


Almanac Realty Securities VI











Net IRR:


Since Inception


11/2016 12/2011

December 31, 2018

Partner/Manager: Almanac Realty Investors

LP Value Add

11/2022 2.4%

3 $20,000,000

12% $0

$568,556,118 $12,408,142

$255,850,253 $11,781,435

55.0% $5,623,918

Private placements of growth

capital into REITs and REOCs in

convertible preferred stock or

debentures.

0.6%

13.1%

1.4x

Almanac Realty Securities VI





7.2%

1.5%

Year‐to‐Date 1.3% 7.7% ‐4.1% 3.4% 7.2%

Quarter ‐0.9% 2.0% ‐2.7% ‐0.7%

One‐Year 1.3% 7.7% ‐4.1% 3.4%

7.7%

Two‐Year 0.5% 7.6% ‐6.4% 0.9% 7.3%

Three‐Year 4.9% 7.3% ‐0.7% 6.6%


Five‐Year 9.5% 7.5% 4.9% 12.7% 9.8%

11.9% 8.6% 6.8% 15.9% 10.2%

25.0%

16.6%51.0%

7.3%

US East

US Midwest

US South

US West71.8%

2.4%

25.8%

Hotel

Land

Residential

20


Almanac Realty Securities VII











Net IRR:


Since Inception


5/2019 12/2014

December 31, 2018


LP Value Add

5/2025 2.4%

6 $30,000,000

12% $11,076,937

$2,142,099,296 $21,911,069

$963,944,683 $6,027,652

55.0% $21,488,231

Invest in private or public real

estate companies structured as

preferred equity, convertible debt,

or common equity.

2.2%

14.4%

1.3x

Almanac Realty Securities VII





7.2%

1.5%

Year‐to‐Date 13.7% 7.0% 11.4% 19.0% 7.2%

Quarter 2.1% 0.7% 2.2% 2.9%

One‐Year 13.7% 7.0% 11.4% 19.0%

7.7%

Two‐Year 15.7% 8.1% 14.0% 23.0% 7.3%

Three‐Year 13.5% 8.7% 11.2% 20.6%


Five‐Year N/A N/A N/A N/A N/A

11.3% 8.6% 10.4% 19.7% 8.8%

38.4%

11.9%19.1%

30.6%US East

US Midwest

US South

US West

4.8%

35.6%

10.1% 4.7%

5.7%

33.2%

6.0%

Hotel

Industrial

Land

Office

Other Property

Residential

Retail

21


Almanac Realty Securities VIII











Net IRR:


Since Inception


N/A 4/2018

December 31, 2018


LP Value Add

N/A 4.3%

1 $75,000,000

12% $74,811,322

$19,183,671 $188,678

($3,032,245) $0

115.8% ($131,982)

Invests in private and public real

estate companies, investments

typically structured as preferred

equity, convertible debt, or

common equity.

0.0%

0.0%

‐0.7x

Almanac Realty Securities VIII





N/M

1.5%

Year‐to‐Date ‐1421.4% ‐356.9% 17.1% ‐339.8% 7.2%

Quarter ‐1421.4% ‐356.9% 17.1% ‐339.8%

One‐Year N/M N/M N/M N/M

N/M

Two‐Year N/M N/M N/M N/M N/M

Three‐Year N/M N/M N/M N/M


Five‐Year N/M N/M N/M N/M N/M

N/M N/M N/M N/M N/M

6.8%7.3%

72.0%

14.0%

US East

US Midwest

US South

US West

100.0%

Hotel

22


Blackstone Real Estate Partners Europe IV L.P. ‐ USD











Net IRR:


Since Inception


3/2019 12/2013

December 31, 2018

Partner/Manager: The Blackstone Group

LP Opportunistic

3/2025 0.3%

43 $25,000,000

15% $4,167,532

$12,092,927,094 $25,065,866

$4,990,066,784 $23,480,884

58.7% $13,535,955

Reposition well‐located,

institutional‐quality properties

suffering from inefficiency for

subsequent sale at premium

pricing.

1.4%

15.0%

1.5x

Blackstone Real Estate Partners Europe IV L.P. ‐ USD





7.2%

1.5%

Year‐to‐Date 7.9% 1.0% 10.9% 11.9% 7.2%

Quarter ‐0.2% 0.4% ‐0.2% 0.3%

One‐Year 7.9% 1.0% 10.9% 11.9%

7.7%

Two‐Year 23.9% 1.0% 29.6% 30.8% 7.3%

Three‐Year 17.3% 1.4% 21.6% 23.2%


Five‐Year 11.0% 1.8% 17.3% 19.3% 9.8%

11.0% 1.8% 17.3% 19.3% 9.8%

100.0%

Europe

4.1%0.6%

35.1%

0.5%

42.0%

17.8% Hotel

Industrial

Office

Other Property

Residential

Retail

23


Blackstone Real Estate Partners VII L.P.











Net IRR:


Since Inception


4/2017 3/2012

December 31, 2018

Partner/Manager: The Blackstone Group

Delaware LP Opportunistic

4/2020 0.2%

91 $25,000,000

15% $3,723,887

$25,665,771,257 $29,663,493

$10,154,856,805 $28,965,861

60.4% $18,235,698

Public‐to‐private transactions,

large private transactions,

recovering office markets, hotel

repositioning and international

investments.

1.9%

16.4%

1.6x

Blackstone Real Estate Partners VII L.P.





7.2%

1.5%

Year‐to‐Date 1.7% 2.2% 0.9% 3.1% 7.2%

Quarter ‐3.3% 0.1% ‐4.0% ‐3.9%

One‐Year 1.7% 2.2% 0.9% 3.1%

7.7%

Two‐Year 9.5% 2.9% 9.9% 13.1% 7.3%

Three‐Year 7.4% 3.0% 7.3% 10.5%


Five‐Year 11.9% 2.9% 13.2% 16.4% 9.8%

19.1% 4.0% 24.2% 28.7% 10.2%

10.2%2.1%

9.2% 0.2%2.0%

8.5%

7.0%

0.4%

14.4%

46.1%

Asia

Australia/Pacific

Europe

Foreign Other

Latin America

US East

US Midwest

US Other

US South

US West

39.2%

2.7%24.7%0.8%

26.4%

6.2%Hotel

Industrial

Office

Other Property

Residential

Retail

24


Bristol Value Fund II











Net IRR:


Since Inception


1/2016 3/2011

December 31, 2018

Partner/Manager: Bristol Group Inc.

LP Value Add

1/2021 15.9%

4 $25,000,000

18% $6,714,809

$198,125,956 $25,823,057

$119,487,227 $13,374,821

39.7% $18,251,059

U.S. diversified real estate

investments.1.9%

10.8%

1.2x

Bristol Value Fund II





7.2%

1.5%

Year‐to‐Date 5.1% 1.0% 5.4% 6.4% 7.2%

Quarter 5.1% ‐0.1% 5.2% 5.1%

One‐Year 5.1% 1.0% 5.4% 6.4%

7.7%

Two‐Year 10.1% 1.7% 12.3% 14.2% 7.3%

Three‐Year 9.8% 2.3% 10.6% 13.1%


Five‐Year 9.4% 2.5% 9.5% 12.2% 9.8%

35.1% 25.2% 10.2% 37.9% 10.1%

50.5%41.0%

8.5%

US East

US South

US West59.9%28.4%

11.8%

Office

Other Property

Residential

25


Brookfield Premier Real Estate Partners











Net IRR:


Since Inception


N/A 10/2018

December 31, 2018

Partner/Manager: Brookfield

LP Core

N/A 4.0%

17 $75,000,000

9‐11% $0

$4,768,793,982 $75,000,000

$1,901,994,229 $0

60.1% $75,643,825

Acquire premier properties on a

value basis to create a diversified

portfolio that offers stable and

predictable cash flows.

7.9%

3.5%

1.0x

Brookfield Premier Real Estate Partners





N/A

1.5%

Year‐to‐Date 1.9% 0.4% 2.0% 2.3% 7.2%

Quarter 1.9% 0.4% 2.0% 2.3%

One‐Year N/A N/A N/A N/A

N/A

Two‐Year N/A N/A N/A N/A N/A

Three‐Year N/A N/A N/A N/A



N/M N/M N/M N/M N/M

1.0%

39.8%

3.8%

10.4%

45.0%

International:All

US East

US Midwest

US South

US West

32.8%

38.9%

28.3%

Industrial

Office

Residential

26


Dimensional Global Real Estate Portfolio











Net IRR:


Since Inception


N/A 9/2012

December 31, 2018

Partner/Manager: Dimensional Fund Advisors

LP Core

N/A 0.4%

443 $25,000,000

>FTSE EPRA/NAREIT $2,130,000

$7,064,261,481 $24,312,455

$7,064,261,481 $1,442,455

0.0% $29,822,979

Real estate asset class through

broad asset class diversification at

the country, REIT sector, and

single‐name level.

3.1%

5.3%

1.3x

Dimensional Global Real Estate Portfolio


for period ended 12/31/2018FTSE

Net Total Gross Gross Gross EPRA NAREIT


‐4.7%

‐5.5%

Year‐to‐Date ‐4.2% ‐4.0% 0.0% ‐4.0% ‐4.7%

Quarter ‐4.9% ‐4.9% 0.0% ‐4.9%

One‐Year ‐4.2% ‐4.0% 0.0% ‐4.0%

3.7%

Two‐Year 2.3% 2.5% 0.0% 2.5% 3.0%

Three‐Year 3.7% 3.9% 0.0% 3.9%


Five‐Year 6.6% 6.9% 0.0% 6.9% 5.3%

4.6% 4.8% 0.0% 4.8% 5.1%

14.8%

6.3%

10.3%

3.1%

0.6%

64.9%

Asia

Australia/Pacific

Europe

Foreign Other

Latin America

US Other

8.9%

13.4%

44.7%

11.4%

21.6% Industrial

Office

Other Property

Residential

Retail

27













Net IRR:


Since Inception


2/2020 12/2016

December 31, 2018

Partner/Manager: DRA Advisors

Delaware LLC Value Add

12/2026 3.8%

34 $60,000,000

12% $32,575,003

$2,713,003,519 $34,093,012

$788,799,261 $10,253,358

70.9% $30,020,431

Target investments that offer

strong income returns and the

potential for capital appreciation.

3.1%

21.4%

1.2x






7.2%

1.5%

Year‐to‐Date 19.4% 13.8% 8.0% 22.6% 7.2%

Quarter 1.9% 3.1% ‐0.5% 2.6%

One‐Year 19.4% 13.8% 8.0% 22.6%

N/A

Two‐Year 23.6% 19.9% 6.9% 27.7% 7.3%




23.6% 19.9% 6.9% 27.7% 7.3%

24.2%

36.9%

20.9%

18.0%

US East

US Midwest

US South

US West

30.4%

19.5%15.3%

34.7% Industrial

Office

Residential

Retail

28













Net IRR:


Since Inception


10/2014 9/2011

December 31, 2018


LLC Value Add

12/2021 1.6%

20 $16,100,000

12% $0

$1,675,553,762 $17,195,242

$674,071,243 $26,210,637

59.8% $9,224,668

National value‐add strategy across

diversified property types.1.0%

20.5%

2.1x






7.2%

1.5%

Year‐to‐Date 38.2% 5.3% 40.1% 46.8% 7.2%

Quarter 5.4% 0.6% 5.4% 6.0%

One‐Year 38.2% 5.3% 40.1% 46.8%

7.7%

Two‐Year 32.6% 7.8% 30.8% 40.4% 7.3%

Three‐Year 31.6% 8.6% 28.5% 38.9%


Five‐Year 25.6% 10.2% 20.1% 31.8% 9.8%

21.4% 11.2% 14.2% 26.7% 10.3%

13.0%

3.7%

69.0%

14.3%

US East

US Midwest

US South

US West

41.5%

11.1%

33.1%

14.3%

Industrial

Office

Residential

Retail

29


DRA Growth and Income Fund VIII











Net IRR:


Since Inception


6/2017 12/2013

December 31, 2018


LLC Value Add

12/2023 1.9%

52 $25,000,000

12% $981,481

$3,643,408,357 $29,214,957

$1,172,261,000 $16,497,450

67.8% $21,023,134

Target investments that offer

strong income returns and the

potential for capital appreciation.

2.2%

12.2%

1.3x

DRA Growth and Income Fund VIII





7.2%

1.5%

Year‐to‐Date 10.9% 11.7% 1.8% 13.7% 7.2%

Quarter 1.6% 2.5% ‐0.5% 2.1%

One‐Year 10.9% 11.7% 1.8% 13.7%

7.7%

Two‐Year 11.2% 11.6% 3.1% 14.9% 7.3%

Three‐Year 11.7% 11.8% 3.2% 15.3%



11.9% 12.3% 2.7% 15.2% 9.6%

13.6%

38.4%32.4%

15.7%

US East

US Midwest

US South

US West

10.6%

30.4%

7.7%

51.3%

Industrial

Office

Residential

Retail

30


FPA Core Plus Fund III











Net IRR:


Since Inception


3/2019 12/2016

December 31, 2018

Partner/Manager: Fowler Property Acquisitions

Delaware LP Core

11/2030 14.1%

15 $60,000,000

9% $4,988,571

$805,899,908 $91,734,100

$413,834,526 $41,397,490

48.6% $54,496,673

To invest in apartments in select

core submarkets in major

metropolitan areas with favorable

demographic trends.

5.7%

5.4%

1.0x

FPA Core Plus Fund III





7.2%

1.5%

Year‐to‐Date 5.1% 3.8% 1.9% 5.7% 7.2%

Quarter 2.2% 1.1% 1.2% 2.3%

One‐Year 5.1% 3.8% 1.9% 5.7%

7.7%

Two‐Year 4.7% 3.1% 2.1% 5.3% 7.3%




4.7% 3.1% 2.1% 5.3% 7.3%

18.3%

30.0%

22.2%

29.5%US East

US Midwest

US South

US West

100.0%

Residential

31


Harrison Street Core Property Fund











Net IRR:


Since Inception


N/A 9/2015

December 31, 2018

Partner/Manager: Harrison Street

LP Core

N/A 1.5%

260 $60,000,000

9% $0

$6,787,073,602 $69,651,336

$5,055,317,511 $9,651,336

25.5% $75,539,317

Senior Housing, Student Housing,

Medical Office, and Self Storage7.9%

9.1%

1.2x

Harrison Street Core Property Fund





7.2%

1.5%

Year‐to‐Date 6.0% 5.4% 1.6% 7.1% 7.2%

Quarter 0.7% 1.3% ‐0.3% 1.0%

One‐Year 6.0% 5.4% 1.6% 7.1%

7.7%

Two‐Year 7.9% 5.7% 3.3% 9.1% 7.3%

Three‐Year 8.4% 5.7% 3.7% 9.5%



8.4% 5.7% 3.7% 9.5% 7.7%

36.5%

24.6%

18.5%

20.4%

US East

US Midwest

US South

US West

39.2%

13.1%

47.7%Office

Other Property

Residential

32


Heitman Real Estate Securities











Net IRR:


Since Inception


3.7% 3.7% 0.6% 4.4% 4.9%


Five‐Year 5.0% 3.7% 1.9% 5.7% 5.3%

Three‐Year 2.9% 4.0% ‐0.4% 3.5% 3.7%

Two‐Year 2.5% 4.0% ‐0.8% 3.2% 3.0%

One‐Year ‐4.5% 3.9% ‐7.6% ‐3.9% ‐4.7%

‐5.5%

Year‐to‐Date ‐4.5% 3.9% ‐7.6% ‐3.9% ‐4.7%


Quarter ‐5.6% 1.0% ‐6.4% ‐5.4%

FTSE


To build a portfolio of securities

producing returns in excess of

their long‐term cost of capital.

3.0%

4.1%

1.2x

Heitman Real Estate Securities


for period ended 12/31/2018

$28,662,135 $23,714,448

$28,662,135 $0

0.0% $28,662,135

N/A 100.0%

0 $25,000,000

>FTSE EPRA/NAREIT $2,130,000

December 31, 2018

Partner/Manager: Heitman Capital Management

Separate Account Core

N/A 9/2013

21.7%

4.8%

16.5%

2.9%

54.1%

Asia

Australia/Pacific

Europe

Foreign Other

US Other

7.5%4.3%

9.8%

18.1%

24.0%

18.4%

17.9%Healthcare

Hotel

Industrial

Office

Other Property

Residential

Retail

33













Net IRR:


Since Inception


N/A 3/2011

December 31, 2018

Partner/Manager: INVESCO Asset Management

LLC Core

N/A 0.7%

102 $35,000,000

NCREIF+1% $0

$13,236,258,800 $47,861,171

$9,967,273,293 $12,861,167

24.7% $70,078,781

Primarily in core, existing

substantially‐leased, income‐

producing industrial, multi‐family,

retail and office properties.

7.3%

10.4%

1.7x



for period ended 12/31/2018FTSE



7.2%

1.5%

Year‐to‐Date 7.9% 3.8% 4.8% 8.7% 7.2%

Quarter 2.1% 0.9% 1.4% 2.3%

One‐Year 7.9% 3.8% 4.8% 8.7%

7.7%

Two‐Year 7.6% 3.7% 4.7% 8.5% 7.3%

Three‐Year 7.8% 3.8% 4.8% 8.8%


Five‐Year 9.7% 4.0% 6.4% 10.7% 9.8%

9.9% 4.3% 6.4% 10.9% 10.5%

24.2%

3.3%

17.7%

54.8%

US East

US Midwest

US South

US West

16.8%

33.0%

1.8%

30.2%

18.3%Industrial

Office

Other Property

Residential

Retail

34


Jamestown Premier Property Fund











Net IRR:


Since Inception


N/A 6/2015

December 31, 2018

Partner/Manager: Jamestown

Delaware LP Core

N/A 2.7%

22 $60,000,000

8% $0

$3,252,983,077 $71,393,998

$2,056,392,083 $31,984,012

36.8% $54,486,204

Invest in high quality office and

retail properties located in major

markets in the U.S.

5.7%

9.7%

1.2x

Jamestown Premier Property Fund





7.2%

1.5%

Year‐to‐Date 7.3% 3.4% 6.2% 9.7% 7.2%

Quarter 1.1% 0.8% 0.4% 1.2%

One‐Year 7.3% 3.4% 6.2% 9.7%

7.7%

Two‐Year 10.6% 4.1% 9.4% 13.8% 7.3%

Three‐Year 8.7% 4.2% 6.9% 11.3%



8.7% 4.2% 6.9% 11.3% 7.7%

68.7%

2.8%

28.5%

US East

US South

US West62.9%8.9%

28.3%Office

Other Property

Retail

35


JP Morgan Strategic Property Fund











Net IRR:


Since Inception


N/A 10/2007

December 31, 2018

Partner/Manager: JP Morgan Private Investments

Bank Commingled Fund Core

N/A 0.3%

166 $50,000,000

8% $0

$42,978,446,218 $55,995,201

$33,423,972,202 $5,995,651

22.2% $86,273,670

U.S. core fund investing primarily

in office, residential, retail and

industrial sectors with largely

income returns and modest

appreciation.

9.0%

5.1%

1.6x

JP Morgan Strategic Property Fund





7.2%

1.5%

Year‐to‐Date 7.0% 4.0% 4.0% 8.1% 7.2%

Quarter 1.7% 0.9% 1.0% 1.9%

One‐Year 7.0% 4.0% 4.0% 8.1%

7.7%

Two‐Year 6.6% 4.1% 3.4% 7.6% 7.3%

Three‐Year 6.8% 4.2% 3.6% 7.9%


Five‐Year 8.9% 4.7% 5.1% 10.0% 9.8%

5.0% 5.3% 0.7% 6.0% 6.8%

26.1%

4.4%

9.6%

18.4%

41.5%

US East

US Midwest

US Other

US South

US West

14.0%0.6%

36.9%

0.8%

22.3%

25.3%Industrial

Land

Office

Other Property

Residential

Retail

36


LaSalle Asia Opportunity Fund V











Net IRR:


Since Inception


11/2020 9/2017

December 31, 2018

Partner/Manager: LaSalle Investment Management

LP Opportunistic

11/2025 6.2%

14 $60,000,000

18% $45,952,805


$954,583,968 $15,846,765

$199,025,282 $1,366,479

79.2% $12,631,734

Invest in income producing assets

in developed Asian economies and

liquid markets.

1.3%

‐34.1%

0.9x

LaSalle Asia Opportunity Fund V


NCREIF



7.2%

1.5%

Year‐to‐Date ‐18.7% 17.6% ‐34.2% 6.5% 7.2%

Quarter 0.9% ‐6.7% 11.0% 4.4%

One‐Year ‐18.7% 17.6% ‐34.2% 6.5%

N/A





‐75.1% ‐29.7% 1.7% 13.5% 7.3%

100.0%

Asia

5.1%

16.6%

28.3%

40.9%

3.3%5.7%

Hotel

Industrial

Office

Other Property

Residential

Retail

37


Lone Star Fund VII, L.P.











Net IRR:


Since Inception


12/2012 6/2011

December 31, 2018

Partner/Manager: Lone Star

LP Opportunistic

7/2019 0.4%

4 $10,000,000

20% Gross $616,355

$67,073,944 $9,383,643

$35,235,722 $16,374,839

47.5% $99,941

Global investments in banks,

financially‐oriented and asset rich

operating companies and

distressed loans and securities.

0.0%

49.0%

1.8x

Lone Star Fund VII, L.P.





7.2%

1.5%

Year‐to‐Date ‐29.2% 3.3% ‐41.4% ‐38.2% 7.2%

Quarter ‐2.3% 2.6% ‐7.6% ‐5.0%

One‐Year ‐29.2% 3.3% ‐41.4% ‐38.2%

7.7%

Two‐Year ‐38.6% 11.3% ‐57.9% ‐48.9% 7.3%

Three‐Year ‐33.2% 13.9% ‐52.8% ‐42.5%


Five‐Year ‐16.9% 12.0% ‐33.9% ‐23.0% 9.8%

2.4% 8.0% ‐6.4% 3.9% 10.7%

100.0%

US Other

100.0%

Other Property

38


Lone Star Real Estate Fund II, L.P.











Net IRR:


Since Inception


12/2012 6/2011

December 31, 2018



5/2019 0.3%

9 $10,000,000

20% Gross $1,139,017

$242,786,696 $8,860,984

$163,429,388 $13,273,299

32.7% $398,334

Invest in global opportunistic and

value investments in distressed

commercial real estate debt

products and equity.

0.0%

25.7%

1.5x

Lone Star Real Estate Fund II, L.P.





7.2%

1.5%

Year‐to‐Date ‐1.0% 8.6% ‐11.2% ‐2.9% 7.2%

Quarter 2.3% 1.7% 1.4% 3.1%

One‐Year ‐1.0% 8.6% ‐11.2% ‐2.9%

7.7%

Two‐Year 2.1% 10.9% ‐12.0% ‐1.8% 7.3%

Three‐Year 5.9% 7.6% ‐3.8% 3.9%


Five‐Year 17.9% 3.5% 15.9% 20.4% 9.8%

11.4% 0.8% 22.6% 23.9% 10.7%

5.3%

0.2%

94.5%

Asia

Europe

US Other

43.8%

50.8%

5.3%

Office

Other Property

Residential

Retail

39


Lone Star Real Estate Fund IV, L.P.











Net IRR:


Since Inception


4/2016 3/2015

December 31, 2018



4/2023 1.7%

17 $48,521,633

20% Gross $10,409,244

$4,903,202,944 $38,112,389

$2,199,546,804 $20,001,612

55.1% $33,204,631

Global investments in distressed

commercial real estate debt and

equity.

3.5%

20.2%

1.4x

Lone Star Real Estate Fund IV, L.P.





7.2%

1.5%

Year‐to‐Date 20.7% ‐1.7% 27.3% 25.4% 7.2%

Quarter 2.7% 1.2% 1.8% 3.1%

One‐Year 20.7% ‐1.7% 27.3% 25.4%

7.7%

Two‐Year 21.7% ‐0.9% 28.9% 27.9% 7.3%

Three‐Year 19.9% 0.8% 24.0% 25.1%



16.9% 0.5% 22.0% 22.6% 8.1%

2.0%

67.4%

30.7%

Asia

Europe

US Other

2.0% 0.3%

8.5%

51.1%

28.7%

9.4%Hotel

Industrial

Office

Other Property

Residential

Retail

40


Lone Star Real Estate Fund V, L.P.











Net IRR:


Since Inception


4/2019 6/2016

December 31, 2018



4/2024 3.2%

8 $92,659,641

20% $80,284,673

$2,437,224,854 $13,281,276

$232,091,568 $4,031,133

90.5% $7,520,393

Global investments in distressed

commercial real estate debt and

equity.

0.8%

‐15.7%

0.9x

Lone Star Real Estate Fund V, L.P.





7.2%

1.5%

Year‐to‐Date 6.1% ‐1.4% 24.3% 22.3% 7.2%

Quarter ‐3.3% ‐1.4% 1.3% 0.0%

One‐Year 6.1% ‐1.4% 24.3% 22.3%

N/A





N/M N/M N/M N/M N/M

38.6%

61.4%

Asia

Europe

5.1%

18.7%

11.5%

27.5%

9.7%

27.6%Hotel

Industrial

Office

Other Property

Residential

Retail

41


Mesa West Real Estate Income Fund III











Net IRR:


Since Inception


10/2017 3/2013

December 31, 2018

Partner/Manager: Mesa West Capital

LP Value Add

10/2022 3.3%

9 $25,000,000

12% $22,521,431

$334,531,090 $18,939,180

$122,651,304 $20,367,251

63.3% $4,079,837

Originate and service first

mortgage loans on middle‐market,

value‐added and transitional

commercial real estate assets.

0.4%

9.1%

1.3x

Mesa West Real Estate Income Fund III





7.2%

1.5%

Year‐to‐Date 12.8% 14.2% 1.4% 15.8% 7.2%

Quarter 4.7% 5.0% 0.7% 5.7%

One‐Year 12.8% 14.2% 1.4% 15.8%

7.7%

Two‐Year 11.5% 12.9% 1.2% 14.2% 7.3%

Three‐Year 10.6% 12.4% 0.7% 13.2%


Five‐Year 10.1% 12.5% 0.6% 13.1% 9.8%

N/A 52.6% ‐4.2% 51.1% 9.9%

52.1%

34.6%

13.4%

US East

US South

US West

15.6%

54.4%

30.0%

Hotel

Office

Residential

42


Mesa West Real Estate Income Fund IV











Net IRR:


Since Inception


12/2019 12/2015

December 31, 2018

Partner/Manager: Mesa West Capital

LP Value Add

12/2024 6.7%

35 $60,000,000

9% $41,333,334

$1,132,329,775 $18,666,666

$284,590,202 $1,449,529

74.9% $19,297,510

Originate and service first

mortgage loans on middle‐market,

value‐added and transitional

commercial real estate assets.

2.0%

8.1%

1.1x

Mesa West Real Estate Income Fund IV





7.2%

1.5%

Year‐to‐Date 8.1% 11.0% 2.0% 13.1% 7.2%

Quarter 1.4% 2.5% 0.3% 2.8%

One‐Year 8.1% 11.0% 2.0% 13.1%

N/A

Two‐Year ‐0.6% 41.5% 1.0% 42.9% 7.3%




‐0.6% 41.5% 1.0% 42.9% 7.3%

27.1%

18.9%

15.0%

39.0%US East

US Midwest

US South

US West

3.5%

40.9%

46.8%

8.7%

Hotel

Office

Residential

Retail

43


PCCP First Mortgage II











Net IRR:


Since Inception

6/2016 12/2011

December 31, 2018

Partner/Manager: PCCP

Delaware LP Core

6/2019 11.8%

0 $25,000,000

7.5% Gross $0

$0 $28,624,054

$0 $32,670,253

0.0% $0

Originate senior, floating rate first

mortgage loans secured by real

estate properties in the U.S.

0.0%

6.3%

1.1x

PCCP First Mortgage II





7.2%

1.5%

Year‐to‐Date N/A N/A N/A N/A 7.2%

Quarter N/A N/A N/A N/A


7.7%

Two‐Year N/A N/A N/A N/A 7.3%


Five‐Year N/A N/A N/A N/A 9.8%

N/A N/A N/A N/A 10.2%

44


Prologis Targeted US Logistics Fund











Net IRR:


Since Inception


N/A 6/2014

December 31, 2018

Partner/Manager: Prologis

LP Core

N/A 0.5%

566 $25,000,000

9% $0

$10,657,431,000 $28,898,605

$8,564,528,000 $3,898,605

19.6% $44,225,784

Invest in logistics real estate

assets in key U.S. Submarkets near

airports, seaports and ground

transportation hubs that are

critical to trade.

4.6%

17.7%

1.7x

Prologis Targeted US Logistics Fund





7.2%

1.5%

Year‐to‐Date 15.9% 5.0% 12.8% 18.3% 7.2%

Quarter 3.1% 1.2% 2.4% 3.5%

One‐Year 15.9% 5.0% 12.8% 18.3%

7.7%

Two‐Year 18.1% 5.2% 15.5% 21.2% 7.3%

Three‐Year 16.7% 5.4% 13.5% 19.4%



16.3% 5.5% 13.0% 19.0% 8.8%

17.8%

9.7%

23.0%

49.5%

US East

US Midwest

US South

US West

100.0%

Industrial

45


Prudential PRISA











Net IRR:


Since Inception


N/A 12/2006

December 31, 2018

Partner/Manager: PGIM Real Estate

Insurance Separate Account Core

N/A 0.5%

267 $50,000,000

8% $0

$24,067,711,458 $54,989,832

$20,224,148,198 $773,779

16.0% $93,888,667

Commingled core fund primarily in

diversified properties with strong

cash flow & potential for

appreciation.

9.8%

4.9%

1.7x

Prudential PRISA Summary of

Performance




7.2%

1.5%

Year‐to‐Date 7.7% 4.4% 4.2% 8.7% 7.2%

Quarter 1.6% 1.1% 0.8% 1.8%

One‐Year 7.7% 4.4% 4.2% 8.7%

7.7%

Two‐Year 7.1% 4.5% 3.5% 8.1% 7.3%

Three‐Year 7.4% 4.5% 3.7% 8.3%


Five‐Year 9.8% 4.7% 5.8% 10.7% 9.8%

4.8% 5.3% 0.3% 5.7% 7.7%

34.6%

8.0%19.7%

37.7% US East

US Midwest

US South

US West

17.5%

33.5%

9.7%

21.9%

17.5%Industrial

Office

Other Property

Residential

Retail

46


Prudential PRISA II











Net IRR:


Since Inception


N/A 6/2007

December 31, 2018

Partner/Manager: PGIM Real Estate

Insurance Separate Account Value Add

N/A 0.5%

165 $21,500,000

9% $0

$13,287,568,281 $23,691,545

$8,738,041,037 $322,691

34.2% $42,910,906

Diversified domestic value fund. 4.5%

6.2%

1.8x

Prudential PRISA II Summary

of Performance




7.2%

1.5%

Year‐to‐Date 8.2% 4.0% 5.3% 9.5% 7.2%

Quarter 1.2% 1.1% 0.4% 1.5%

One‐Year 8.2% 4.0% 5.3% 9.5%

7.7%

Two‐Year 7.5% 4.2% 4.5% 8.8% 7.3%

Three‐Year 8.2% 4.3% 4.9% 9.4%


Five‐Year 10.8% 4.5% 7.2% 11.9% 9.8%

3.5% 5.0% ‐0.4% 4.6% 7.2%

40.6%

3.3%19.7%

36.5% US East

US Midwest

US South

US West

1.0% 2.1%

6.3%

40.6%

5.9%

25.3%

18.8%Hotel

Industrial

Land

Office

Other Property

Residential

Retail

47


Torchlight Debt Opportunity Fund IV











Net IRR:


Since Inception


12/2016 6/2013

December 31, 2018

Partner/Manager: Torchlight Investors

LLC Opportunistic

12/2021 2.7%

45 $25,000,000

15% $0

$561,028,004 $32,343,013

$423,938,234 $33,101,685

24.4% $9,776,398

Undervalued markets/assets and

portfolio management strategies

generally unavailable to other

commercial real estate debt

managers.

1.0%

10.6%

1.3x

Torchlight Debt Opportunity Fund IV





7.2%

1.5%

Year‐to‐Date 10.8% 7.4% 7.4% 15.1% 7.2%

Quarter ‐0.2% 1.4% ‐3.1% ‐1.8%

One‐Year 10.8% 7.4% 7.4% 15.1%

7.7%

Two‐Year 11.1% 8.8% 6.1% 15.2% 7.3%

Three‐Year 10.7% 8.7% 5.0% 14.1%


Five‐Year 10.5% 8.7% 4.7% 13.7% 9.8%

9.7% 8.6% 4.5% 13.4% 9.9%

26.8%

21.9%15.5%

35.8%Foreign Other

US East

US Midwest

US South

US West

17.3%

6.8%

13.8%

1.6%

29.7%

30.9%

Hotel

Industrial

Office

Other Property

Residential

Retail

48


Torchlight Debt Opportunity Fund V











Net IRR:


Since Inception


6/2019 12/2014

December 31, 2018


LLC Opportunistic

6/2024 2.2%

112 $30,000,000

13% $12,000,000


$1,983,779,581 $18,000,000

$1,015,404,084 $1,884,100

48.8% $21,244,136

Invest across the entire spectrum

of debt and other interests

relating to commercial real estate.

2.2%

14.1%

1.3x

Torchlight Debt Opportunity Fund V


NCREIF



7.2%

1.5%

Year‐to‐Date 13.5% 10.5% 7.9% 19.0% 7.2%

Quarter ‐0.8% 2.2% ‐2.8% ‐0.6%

One‐Year 13.5% 10.5% 7.9% 19.0%

7.7%

Two‐Year 14.6% 12.6% 8.3% 21.7% 7.3%

Three‐Year 14.6% 14.9% 7.1% 22.7%



13.1% 60.2% 30.4% 81.7% 8.8%

25.5%

21.4%28.9%

24.1%

Foreign Other

International:All

US East

US Midwest

US Other

US South

US West

11.3%3.7%

23.4%

5.8%39.3%

16.4% Hotel

Industrial

Office

Other Property

Residential

Retail

49


Torchlight Debt Opportunity Fund VI, LP











Net IRR:


Since Inception


2/2022 11/2017

December 31, 2018


LLC Opportunistic

2/2029 5.9%

72 $60,000,000

12% $56,557,864

$995,954,498 $6,000,000

$56,616,970 $2,557,864

94.3% $3,412,974

Invest across the entire spectrum

of debt and other interests

relating to commercial real estate.

0.4%

‐0.8%

1.0x

Torchlight Debt Opportunity Fund VI, LP





7.2%

1.5%

Year‐to‐Date ‐5.4% 9.4% 7.4% 17.4% 7.2%

Quarter ‐14.5% 4.2% ‐14.6% ‐10.3%

One‐Year ‐5.4% 9.4% 7.4% 17.4%

N/A





‐5.4% 9.4% 7.4% 17.4% 7.2%

5.0%

2.0%

26.6%

5.0%50.1%

11.2% Hotel

Industrial

Office

Other Property

Residential

Retail

0.0%0.0%

39.4%

11.9%

0.0%

34.4%

14.2%Foreign Other

International:All

US East

US Midwest

US Other

US South

US West

50


USAA Eagle Real Estate Fund











Net IRR:


Since Inception


N/A 10/2018

December 31, 2018

Partner/Manager: USAA

LP Core

N/A 3.3%

40 $75,000,000

1% > ODCE $50,429,247

$3,704,758,212 $24,570,753

$2,440,806,090 $0

34.1% $24,878,642

Invest in industrial, multifamily,

office, and retail properties in

major U.S. metropolitan areas.

2.6%

7.0%

1.0x

USAA Eagle Real Estate Fund





N/A

1.5%

Year‐to‐Date 1.7% 0.8% 1.2% 2.0% 7.2%

Quarter 1.7% 0.8% 1.2% 2.0%


N/A





N/M N/M N/M N/M N/M

15.2%

8.3%7.1%

19.5%US East

US Midwest

US Other

US South

US West

19.7%

16.8%

44.6%

18.9%

Industrial

Office

Residential

Retail

51


Westbrook Real Estate Fund X











Net IRR:


Since Inception


9/2019 3/2016

December 31, 2018

Partner/Manager: Westbrook Partners

LP Value Add

9/2023 2.1%

44 $60,000,000

12% $36,391,109

$3,466,464,718 $30,539,365

$1,329,153,068 $6,868,533

61.7% $27,498,596

Target existing assets in need of

improvements and repositioning

and/or have distressed capital

structures in select global

markets.

2.9%

12.4%

1.1x

Westbrook Real Estate Fund X





7.2%

1.5%

Year‐to‐Date 12.6% ‐1.5% 20.0% 18.3% 7.2%

Quarter 3.2% ‐0.6% 4.2% 3.6%

One‐Year 12.6% ‐1.5% 20.0% 18.3%

N/A

Two‐Year 11.4% ‐2.5% 20.6% 17.8% 7.3%




10.8% ‐5.1% 28.0% 22.0% 7.4%

11.7%

26.0%

34.9%

27.4%Asia

Europe

US East

US West

9.6%

14.5%

48.8%

22.6%

4.5%

Hotel

Industrial

Office

Residential

Retail

52

1 | P a g e S t e p S t o n e R e a l E s t a t e – W i n t e r 2 0 1 8

StepStone Real Estate

Market Commentary

Winter 2018

Year-over-year Global real estate transaction volume grew 3.9% in 2018 to $944 billion, led by a 17.9% increase in North America volume. The Global level is -2.7% below the current cycle peak of $970 billion in 2015 and -8.2% below the prior cycle high of $1.0 trillion in 2007.

_______________________________________

Figure 1| Annual Global Transaction Volume

_______________________________________

Source: Real Capital Analytics (12/31/18)

North America posted 51% of Global volume, marking the first time in the current cycle for North America to represent a majority of transaction activity. Ongoing concerns over Brexit contributed to a -10.0% decline in Europe, Middle East and Africa (EMEA) to $305 billion. US - China Trade War concerns and China’s recent implementation of capital controls contributed to Asia’s volume decline of -2.3% to $159 billion.

_______________________________________

Figure 2| Regional Share of Global Transaction Volume

_______________________________________

Source: Real Capital Analytics (12/31/18)

The investor demand demonstrated by the increased transaction volume has led to increased valuations across most developed markets. These increased valuations occurred as many central banks were tightening leading to spread compression globally in the fourth quarter. The cap rate spread in Frankfurt was highest among major global developed markets, ending the year at 5.16%. In contrast, Hong Kong ended the year with the lowest cap rate spread at -0.64%. The cap rate spread for New York Office was 1.60% as of December 31, 2018.

_______________________________________

Figure 3| Office Cap Rate Spread to 10 Year Sovereign Debt

_______________________________________

Source: Bloomberg (12/31/18)

$1028

$445

$239

$412

$533$583

$724

$834

$970

$869$908

$944

$

$200

$400

$600

$800

$1000

$1200

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Tran

sact

ion

Volu

me

($ b

illio

n)

50%

34%24%

35%41%

47% 46% 45% 49% 50% 45%51%

13%

19%

27%

26%21%

21% 20% 18% 15% 17%18%

17%

37%47% 49%

39% 38% 33% 35% 37% 36% 34% 37% 32%

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018Americas Asia EMEA

5.16%

4.30%3.99%

3.11% 3.08%

1.60% 1.51%

-0.64%Frankfurt Tokyo Paris Toronto London New York Sydney Hong

Kong

VI.REAL ESTATE MARKET OVERVIEW


Fundraising and Dry Powder

2018 continued the trend of large managers getting larger and limited partners reducing the number of manager relationships. The number of funds closed in 2018 (298) was the lowest level in over five years and down 25% relative to 2017 (406). At $118 billion, the amount of capital raised in 2018 was the lowest level since 2013.

_______________________________________

Figure 4| Real Estate Funds Closed by Year

_______________________________________

Source: Preqin (12/31/18).

The two hundred funds targeting North America received $72 billion, which was 61% of all capital closed in 2018. The sixty-three Europe and twenty-two Asia targeted funds received $30 billion and $15 billion, respectively.

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Figure 5| Real Estate Funds Closed by Region

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More Value-Added (115) strategies closed than Opportunistic (68) in 2018. However, the Opportunistic funds closed on more capital than the Value-Added funds, with $43 billion and $36 billion, respectively. There was $26 billion raised by the fifty-four debt funds that closed in 2018.

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Figure 6| Real Estate Funds Closed by Strategy

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358 363395 393 401 406

298

88109 122

139 130 132118

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Core Core-Plus Value Added Opportunistic Debt



Shift from Core and Gateway Markets

Contributions to US Core Open-Ended funds has decreased over the past few years as investors react to heightened valuations and lower yields. The aggregate contribution queue for the funds in the NCREIF ODCE Index ended 2018 at $3.8 billion, which is about one-third of the peak levels in 2014 when there were $10.8 billion of committed capital waiting to be called.

Of the twenty-five ODCE funds, fourteen have contribution queues and seven have redemption queues. One fund in particular makes up $2.2 billion of the $2.3 billion redemption queue.

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Figure 7| Core Contribution and Redemption Queues ($bil.)

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Source: StepStone Real Estate (12/31/18).

As investor demand diminishes a bit in the Core segment, there is a related movement of capital into secondary and tertiary markets. The Major Markets of Boston, New York, Washington DC, Chicago, San Francisco and Los Angeles have

seen values grow slower than the Non-Major Markets for each of the last six quarters.

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Figure 8| Major vs Non-Major Market

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Source: Moody’s Commercial Property Price Index (12/31/18).

With falling yields and slowing appreciation, one-year total returns for NCREIF in 2018 of 6.72% were below the long-term historical income returns of 7.21%.

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Figure 8| Core Contribution and Redemption Queues

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Source: NCREIF (12/31/18).

$1.5

$6.2

$7.5$7.0

$10.6 $10.8

$8.9

$6.1 $6.2

$3.8

($6.2)

($.3) ($.4) ($.1) ($.1) ($.0) ($.2)

($1.9)

($.3)

($2.3)

$208.2

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Contribution Queue

Redemption Queue

Total Net Assets in Core Funds

133.5

150.4

125.2

0

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National All PropertyMajor MarketsNon Major Markets

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Retu

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Average Total Return

Average Income Return

Average Appreciation Return


US Fundamentals Remain Strong

All four of the main NCREIF property types produced positive returns for the four quarters ending in December. Industrials led with 14.3%, followed by Office (6.8%), Apartments, (6.1%) and Retail (2.2%). Concerns over store closings and e-commerce led to year-over-year value declines of -2.4% for the Retail sector. These same factors contributed to a 9.1% appreciation gain for Industrials.

Vacancy has fallen below the year ago levels for all major property types in the NCREIF Property Index (“NPI”). Industrial (3.2%) and Office (10.4%) vacancies are at 10-year lows.

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Figure 9| US Vacancy

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Source: NCREIF (12/31/18). Data reflect the prior 40 quarters.

NOI Growth for Industrials (9.6%) is at a 10-year high. Other sectors are at, or below, the long-term average level for NOI Growth.

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Figure 10| Four Quarter NOI Growth

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NPI cap rates are near record lows (4.3%) and have compressed below year ago levels for all property types except Retail (4.7%). Industrial (4.5%) and Office (4.2%) cap rates are at 10-year lows.

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Figure 11| Cap Rates

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6.0% 6.3%

3.2%

10.4%

6.9%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

NPI Apartment Industrial Office Retail

Vaca

ncy

AverageCurrentPrior 4 Qtrs

4.1%5.4%

9.6%

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4.3%4.2%

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4.7%

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7.5%

8.0%


Cap

Rate



US Apartment Sector

Apartment supply has exceeded demand for eight straight quarters, which is causing vacancy to rise and rents to fall.

There were a little more than 53,000 new Apartment units completed across the US in the fourth quarter, the lowest quarterly level in over two years. The four quarter total units supplied through 4Q18 was about 244,000, which is 1.2% below the four-quarter level through 4Q17.

Demand in the quarter was around 41,000 units, which is the lowest level in over five years.

Vacancy has risen to 4.9% through December, up 30 basis points from the 4.6% one year prior. Vacancy is much tighter for the BC-Class units (3.6%) compared to A-Class units (6.2%).

Absorption for the quarter was highest in New York (4.5%), Denver (3.7%) and Austin (3.3%).

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Figure 12| Apartment Supply & Demand

_______________________________________

Source: REIS (12/31/18).

Rent growth for A-Class units in the quarter was 4.6%, which is inline with the year ago growth levels. Given the tighter vacancy, BC-Class units are seeing accelerating rent growth. Rent growth in the quarter for the non-luxury

segment was 4.4%, which up 30+% from the year ago period.

Rent growth was highest in Phoenix (8.4%), Atlanta (7.5%) and Denver (7.0%).

With $51 billion of transaction activity in the quarter, the Apartment segment led all property types and was 31% of activity for the quarter. Volume in the quarter was up 12% compared to the same quarter a year ago.

Los Angeles and Dallas were virtually even for annualized volume through the end of the quarter, though Dallas is coming off even higher levels in late 2017. If combined, Manhattan and the NYC Burroughs would have led the transaction activity for the quarter. San Francisco posted the highest year-over-year growth in transaction volume (105%). Among the ten largest markets by volume, Denver saw the largest year-over-year decline (-23%).

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Figure 13| Apartment Transaction Activity

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Source: Real Capital Analytics (12/31/18).

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Demand Supply Vacancy

-125% -100% -75% -50% -25% 0% 25% 50% 75% 100% 125%

-$12 -$10 -$8 -$6 -$4 -$2 $ $2 $4 $6 $8 $10 $12

Los AngelesDallas

ManhattanHouston

AtlantaNYC Boroughs

PhoenixDenver

ChicagoSeattleAustin

DC VA burbsOrlando

Raleigh/DurhamTampa

DC MD burbsSan Francisco

CharlottePhiladelphiaSan Antonio

Las VegasBoston

No NJInland Empire

Portland

Year over Year Change in Volume (%)

12 Month Volume ($ billion)

Volume

Change (YoY)


US Industrial Sector

Industrial demand has exceeded supply since 2011, which has resulted in tight vacancy and strong NOI growth.

After growing for five straight years, demand growth is beginning to slow. The 128 million square feet of demand is 13% below the year ago level. That said, supply has not kept up with the demand that has come from online retailers and logistics firms. Reis forecasts that new supply will step down over the next few years.

Vacancy has fallen to 7.0% through December, down 40 basis points from the 7.4% one year prior. Vacancy is tighter for modern logistics facilities and in-fill locations that can serve “last mile” distribution. Vacancy is tightest in the west coast markets of Los Angeles (4.7%), Orange County (6.6%) and Seattle (6.7%).

Absorption for the quarter was highest in Denver (2.9%), Riverside (2.8%) and Indianapolis (2.6%).

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Figure 14| Industrial Supply & Demand

_______________________________________


Year-over-year rent growth of 2.8% was slightly ahead of the five-year average of 2.5% from 2012 to 2017. That said, the industrial rent growth was down from the 5.7% level posted for

the year ago period as demand comes off slightly. Rent growth was highest in Fort Worth (4.2%), Riverside (4.1%) and Chicago (4.0%).

With $27 billion of transaction activity in the quarter, the Industrial segment has overcome the retail sector as the third largest sector behind apartment and office. Volume in the quarter was up 25% compared to the same quarter a year ago.

Chicago had the highest amount of annualized volume through the end of the quarter, followed by Dallas and Los Angeles. Among the ten largest markets by volume, Los Angeles saw the largest year-over-year decline (-15%) and Seattle saw the largest increase (132%). Memphis, the headquarters of logistics leader UPS, saw the highest year-over-year volume growth (153%).

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Figure 15| Industrial Transaction Activity

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-$8 -$6 -$4 -$2 $ $2 $4 $6 $8

ChicagoDallas

Los AngelesInland Empire

AtlantaSeattle

No NJHoustonSan JosePhoenix

NYC BoroughsEast Bay

BostonOrange Co

Miami/Dade CoDenver

BaltimoreColumbusSan Diego

MinneapolisIndianapolis

MemphisOrlando

PhiladelphiaSan Francisco



Volume


US Office Sector

Despite record employment levels, Office vacancy is rising as supply has exceeded demand for 10 of the past 11 quarters.

There were 11 msf new Office space completed across the US in the fourth quarter, which is below the 12 msf delivered in the same period a year ago. The one-year total supplied through 4Q18 was about 43 msf, which is slightly below the four-quarter level of 45 msf through 4Q17.

The calendar year demand level in 2018 was the lowest level since 2013.

Vacancy has risen to 16.7% through December, up 30 basis points from the 16.4% one year prior. Vacancy is tighter for the A-Class space (15.3%) compared to B-Class space (18.4%).

Absorption for the quarter was highest in the tech driven markets of San Jose (5.1%), San Francisco (4.6%) and Denver (2.7%).

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Figure 16| Office Supply & Demand

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Rent growth for A-Class space in the quarter was 2.6%, which is above the year ago growth level of 1.5%. Rental growth in BC-Class space was 2.4%, compared to 1.8% for the year ago.

Rent growth was highest in San Jose (5.0%), Orange County (4.0%) and Denver (3.7%).

With $41 billion of transaction activity in the quarter, the Office segment was behind only Apartments and was 24% of activity for the quarter. Volume in the quarter was nearly flat, growing only 1.2% compared to a year ago.

Large Office markets of Boston and Los Angeles saw significant volume declines of -9% and -34%, respectively. Among the 10 largest Office markets, Chicago saw the largest year-over-year increase in transaction volume (67%).

In advance of the Amazon HQ2 announcement, the NYC Burroughs posted the highest growth in transaction volume (92.4%). Among the ten largest markets by volume, Denver saw the largest year-over-year decline (-23%). The other, and ultimate, winner in the HQ2 process was Washington DC, where CBD volume fell -7% and suburban volume grew 6%.

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Figure 17| Office Transaction Activity

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-$20 -$16 -$12 -$8 -$4 $ $4 $8 $12 $16 $20

ManhattanBoston

Los AngelesChicagoSeattle

San JoseDC

DallasSan FranciscoDC VA burbs

AtlantaPhoenixDenver

NYC BoroughsHouston

Orange CoSan Diego

East BayPhiladelphia

Raleigh/DurhamAustinNo NJ

MinneapolisCharlottePortland



Volume

Change (YoY)


US Retail Sector

Though Retail supply remains well below pre-GFC levels, it has exceeded demand for eight straight quarters.

There were a little more than 1.9 million square feet of new Retail space completed across the US in the fourth quarter. The four-quarter total supplied through 4Q18 was about 8 million square feet, which is 40% below the four-quarter level through 4Q17.

Demand in the four quarters ending 4Q18 was about 70% lower than the year ago levels.

Vacancy has risen to 10.2% through December, up 20 basis points from the 10.0% one year prior. With mall closings, vacancy is lower in 2018 than 2011, when vacancies hit 11.1%

Absorption for the quarter was highest in West and South markets of Sacramento (1.7%) Seattle (1.3%), and Orlando (1.1%).

_______________________________________

Figure 18| Retail Supply & Demand

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Rent growth for Retail was below inflation at 1.5%, down from 1.9% a year ago.

Rent growth was highest in San Jose (4.1%), Orlando (3.0%) and Los Angeles (2.7%).

With $17 billion of transaction activity in the quarter, the Retail segment was the lowest of the main property types and was 15% of activity for the quarter. Volume in the quarter was up 31% compared to the same quarter a year ago, which was the largest increase among the main property types.

Among the ten largest markets by volume, San Diego saw the largest year-over-year increase (120%). San Jose had the largest volume increase with a gain of almost 250%.

It is worth noting that only three of the Top 25 markets saw a decline in volume, led by the relatively small Broward County with a 37% decline.

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Figure 19| Retail Transaction Activity

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Los AngelesManhattan

ChicagoDallas

HoustonLas Vegas

AtlantaSan Diego

NYC BoroughsNo NJ

SeattleInland Empire

PhoenixMiami/Dade Co

DenverBoston

DC VA burbsTampa

DC MD burbsSan Jose

San FranciscoLong IslandOrange Co

BrowardBaltimore



Volume

Change (YoY)

quarterly real estate monitoring report · 26.06.2019 · lone star real estate fund iv dra growth...

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